1983 (9) TMI 36 - HC - Income Tax

Payment for land lease deemed capital expenditure, not revenue. Court rules in favor of Revenue.

The High Court determined that the payment of Rs. 62,500 made by the assessee for acquiring a lease on a plot of land was capital expenditure, not revenue ... Penalty Issues Involved:1. Nature of the payment of Rs. 62,500 - whether it is of a revenue nature or capital expenditure.Summary:Issue 1: Nature of the Payment of Rs. 62,500The primary issue was whether the payment of Rs. 62,500 made by the assessee, a registered firm engaged in the business of motor and automobile parts, for acquiring a lease on a plot of land was of a revenue nature or capital expenditure. The assessee had initially been allotted the plot on a temporary lease basis, which was later terminated. The plot owner offered a permanent lease for 30 years with a premium of Re. 1 per sq. ft., amounting to Rs. 62,500, payable in 12 equal annual instalments, later extended to 30 instalments. The assessee claimed this payment as revenue expenditure under 'Rent, rates and taxes.'The Income Tax Officer (ITO) disallowed the claim, treating the payment as capital expenditure for acquiring a capital asset. The Appellate Assistant Commissioner (AAC) upheld this view. The Income-tax Appellate Tribunal (ITAT) had a split decision, with the judicial member considering the payment as advance rent and the accountant member viewing it as capital expenditure. The President of ITAT agreed with the judicial member, treating the payment as advance rent.The High Court, however, disagreed with the ITAT's majority view. It referred to the Supreme Court's decisions in CIT v. Panbari Tea Company Ltd. and Durga Das Khanna v. CIT, emphasizing that the nature of the payment should be determined by whether it was for acquiring a capital asset or for enjoying the benefit granted by the lease. The Court noted that the lease terms provided the assessee with a 30-year tenure, with a stipulated rent and a premium calculated based on the area of the plot. The provision for re-entry by the plot owner under certain conditions did not negate the enduring nature of the asset acquired.The Court concluded that the payment of Rs. 62,500 was for acquiring a capital asset and thus constituted capital expenditure. The question referred was answered in the negative, in favor of the Revenue, and the assessee was directed to pay the costs of the reference to the Commissioner.